Putting the sci-fi film excitement aside, the objections to this latest technology are clear.  You would not want people wearing them in a casino or cinema, for example, for fear of card counting or piracy.

More interesting is the concern surrounding privacy.  It will be even harder to control your online presence if information is being constantly uploaded by people wearing this technology.

But, what is privacy?  Surprisingly privacy in the UK was only explicitly enshrined in law in 2000 with the introduction of the Human Rights Act 1998 (HRA) which requires UK courts to act in a way that is compatible with the European Convention on Human Rights (the Convention).  Article 8 of the Convention provides that everyone has the right to respect for his private and family life and Article 10 provides that everyone has the right to freedom of expression.  This right to privacy is then balanced against the public interest.

Google is no stranger to questions surrounding privacy.  Earlier this year, it agreed to pay a £4.6m fine for collecting people’s personal data from personal Wi-Fi networks without authorisation when setting up Street View.  Six European data protection agencies, including the UK, are also rumoured to be contemplating legal action over Google’s privacy policy.  They are seeking to ensure, amongst other things, that Google does not store too much data about users.

There is no doubt, however, that the proliferation of Glass is certainly going to lead to further intrusion into people’s lives and erosion of their privacy.

In light of this and the global reach of such technology, we have reached a point where we desperately need global regulation of privacy issues whether by law or an enforceable code of conduct.  However, it is very difficult to envisage any such international harmonisation or accord in the near future given the massive disparities between different countries’ and societies’ approach to issues of privacy and personal freedom.

Another major concern relates to security.  Rumour has it that Glass will not be password protected and this begs the question as to how easy it will be for a hacker to hack your Glass and access your passwords, work and domestic details.

A more personal concern is whether having constant access to information will lead to a slow brain death.  If we are wearing Glass and could just ask Google for the answer, will we stop thinking and rely more and more on instant data and answers?  This may sound silly but we have all heard about those people who drive the wrong way up one way streets or end up in the middle of nowhere because they blindly follow their satnavs.

There is no doubt that Glass is here to stay but once Glass and augmented reality technology become features of daily life, I expect an explosion of moral debate and privacy litigation.

Simon Halberstam

Our speakers will help you to understand the legal, tax and regulatory implications and explain the benefits of setting up, raising funds through or investing in, a crowdfunding platform.

Andy Solomon, Solicitor, Kingsley Napley
Andy will cover some of the legal issues that crowdfunding platforms need to consider, such as those set out below:

• Ownership of intellectual property rights in the software comprising the crowdfunding platform
• The importance of branding and the use of trademarks and domain names to establish and protect a crowdfunding brand

• Minimising the legal exposure of the crowdfunding platform: contracts with investors and businesses raising funds via the platform.

Richard Heap, Consultant, Kingston Smith LLP
Richard will look at the accounting, tax and VAT implications of the crowdfunding platform model

Gill Roche-Saunders, Consultant, Bovill
Gill will discuss the following issues when considering a crowdfunding platform:

• The options for regulated crowdfunders
• The impact of different crowdfunding modelsThe benefits and challenges of being authorised

• Key hot spots for FCA

The most famous example of crowdsourcing is Wikipedia which, unless you have been living in a cave, you will have heard of.  Wikipedia relies on the public populating the online encyclopaedia and has proven incredibly effective.  In the world of work, the possibilities are endless.  Crowdsourcing is often used by graphic designers although Walmart (owners of Asda), is reportedly considering encouraging store customers to deliver goods to those who have ordered online who live on their route home in exchange for a discount on their food shop, instead of outsourcing delivery to a single third party such as Ocado.

The advantages of crowdsourcing are the level of choice and the talent and the creativity to which it gives you access. It can also be a lot faster and lead to higher quality work as people are competing against each other (as humans, we all want to win after all).  The disadvantages include the amount of responses through which you may have to wade and the potential legal pitfalls of the process, as discussed below.  A word of caution, make sure your work spec is crystal clear before you attempt to crowdsource as it can be incredibly frustrating for all those involved in the process if it is not.

The main legal pitfall in crowdsourcing relates to the ownership of the intellectual property (IP) rights in the sourced work.  How do you know that all the work product proffered is original and not stolen from a third party?  This is important because if you end up sourcing a product, some of the IP rights in which belong to a third party that has not consented to their use, you may end up facing an injunction and/or a  claim for damages.  Fines and prison sentences are also on the agenda.  You will need to include appropriate warranties and indemnities in your contracts with the contributors. However, in reality, these may not provide you with effective protection if a disgruntled third party IP Rights owner decides to take action against you.

Beware the ides of open source.  Generally speaking, open source is the friend of developers, cutting development effort and time but the enemy of those who commission the work as they will end up with parts of their product being subject to open source governing licences many of which contain adverse provisions regarding IP rights ownership which may affect not just those parts of the development which incorporate open source code.

Even if there are no third party ownership issues, you need to ensure that your contract with your contributors assign the relevant IP rights to you.  This is  because when working with contractors, it will be the contractor who owns the IP rights unless the contract provides to the contrary.  This can be further complicated if the contributors are not based in the UK and foreign legal provisions come into play.

There is also the danger that a disgruntled, unsuccessful crowdsourcing entrant brings a claim for copyright infringement against a company who ran a crowdsourcing exercise claiming that the company is using his or her response without permission.  This may be because the winning entry was similar (there was a job spec after all) or because the company has developed a similar idea independently.

So, how do you protect yourself as a business? Well first of all, if you like a response and want to use it, buy it and the IP rights that go with it.  Once you have done that, you should be able to use it freely.  But, in any event, beware the open source and third  party demons mentioned above.

Also, you should maintain a clear record of your own development process so as to be able to fend of any claims of copyright infringement.  You also need to ensure that the staff involved in the crowdsourcing exercise all understand the legal issues surrounding it.  They should understand the consequences of misusing crowdsourced designs and ideas and all the IP Rights issues which crowdsourcing entails.

So, in summary, use crowdsourcing (is it not after all, capitalism at its best?) but make sure you understand the IP issues involved before you do so.  Now you’d expect me to say this but do get appropriate legal advice!

Roberta Draper

The FSA have this year approved the second crowdfunding platform – Crowdcube – meaning that investors using this platform will now be able to claim compensation from the Financial Services Compensation Scheme and access the Financial Ombudsman Service. Until this year, only Seedrs was approved by the FSA, but this does not facilitate direct investment in small businesses and instead holds shares on your behalf as a nominee. Crowdcube, however, does describe itself as giving “the UK’s entrepreneurs and business pioneers a new way to raise business finance by tapping into a ‘crowd’ of like-minded individuals willing to invest smaller amounts of cash in exchange for rewards and a stake in their business” and allowing you to become a direct shareholder.

If you are not sure it is for you, fear not, there are crowdfunding platforms out there for all tastes. If you are worried about future student debt and keen to encourage future entrepreneurs, take a look at Pave or Upstart. These are crowdfunding websites where investors can fund recent graduates and young professionals whom they think will become successful in the future in exchange for a portion of their future earnings. If you are feeling philanthropic and do not expect a return for your money see Spacehive, a funding platform for neighbourhood improvement projects, or Kiva, a not for profit organisation which enables loans from $25 for projects across the world with the aim of alleviating poverty. If you are keen to invest in a creative project in exchange for a reward such as a first edition of the product, see Kickstarter. If you are looking for a commercial investment, you have many options including the aforementioned Seedrs and Crowdcube.

Whether you always wanted to be a Dragon or are a proponent of David Cameron’s Big Society, crowdfunding is worth a look.

As a lawyer, however, I must finish with a note of caution. Before investing through these websites, do your due diligence. Ensure that the following questions are answered – does the platform operate an ‘all or nothing’ or ‘keep it all’ scheme? What exactly are you gaining in exchange for your investment? Will you be a shareholder and if so, what type of shares will you hold? Have you considered how long it will take to make a return on your money? Are you comfortable with the risk? What happens if the website or start-up/individual you have invested in goes bust or does not pay up? In short, treat these investments like any other commercial investment and seek advice when appropriate.

Some view these platforms as public markets without any of the controls that come with a listing on the stock exchange. I do not necessarily agree but am hopeful that more of these investment platforms receive FSA approval, as currently investors in a crowdfund have little or no protection if the business or project fails, and become realistic investment mechanisms for normal (if there is such a thing) people.

*In April 2013 the Financial Services Authority (FSA) was replaced by two new regulatory bodies, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

Roberta Draper

What is Online Behavioural Advertising?

Online Behavioural Advertising is the process of tracking consumers’ online behaviour in order to deliver individually targeted advertising.

What is a third party?

The rules define a third party as “an organisation that engages in OBA (i.e. collects and uses web viewing behaviour data for the purposes of OBA) via websites other than those that it or an entity with which it is under common control owns or operates”.

The Key Rules

1. Third parties must provide “clear and comprehensive notice” about OBA activity on their own websites as well as on any advert published by the third party to other sites.
2. Third parties must obtain “explicit consent” before using technology that collects all, or substantial amounts of data on web activity for the purpose of targeted advertising.
3. Third parties must provide an opt-out on any OBA data collection for consumers not wishing to receive targeted advertising.
4. Advertisers must cooperate with the ASA, CAP or the Information Commissioner’s Office to identify any offending third party.
5. Third parties must not specifically target OBA at children aged 12 or under.
6. Any data gleaned from consumer web activity must be held using appropriate security measures.

Exclusions

The following activities are exempt from the new rules:

1. Tracking by a publisher across its own website domains.
2. Tracking performance and effectiveness of ad campaigns.
3. Contextual advertising whereby the text on a website is scanned and targeted advertising applied to that site.
4. Web analytics – analysing web traffic and page views.
5. The use of OBA in interactive media, online video streaming or mobile phones.

However, the ‘CAP help note’ on OBA indicates that comparable rules will soon be applied to mobile devices.

Implementation

Third parties will need to give notice that they are tracking site visits, giving consumers the choice to allow the targeted adverts and tracking, or not. It is believed that most third parties will offer a link through to an EU industry wide “opt out” option on the screen to allow consumers to reject OBA tracking.

Sanctions

For the most part it is likely the majority of OBA rule breaches will be dealt with by remedial action. Where further action is required, although the ASA cannot impose financial sanctions it can instigate investigations which can be expensive, time consuming and potentially humiliating if adverse findings are published in the press.

It is likely most breaches will still be dealt with by ‘naming and shaming’, however the CAP compliance team also have 2 new sanctions:

1. Revocation of the EU self-regulation Framework’s trading seal of approval signifying best practice; and
2. Revocation of the licence to use the EU link offering the obligatory OBA opt-out

Questions remain over the extent to which CAP will use its new powers and what impact they will have on offending companies.

The new rules regulating OBAs significantly extend ASA’s enforcement remit beyond regulating the substance of advertisements into regulating the technology used to collect and analyze data, and deliver targeted adverts. This is a completely new field for the ASA and how it applies and enforces its new found powers will set far reaching precedents.

Simon Halberstam

What are employers’ main concerns?

Employers are increasingly concerned with the issues arising from these influential, accessible and highly publicised platforms. They find themselves between a rock and a hard place as, whilst mindful of the privacy rights of their employees, they are no longer able to ignore the potential implications of their personal use of social media.

Recent reports suggest that a significant number of employees have posted about work, customers or work colleagues on social networking sites. Unsurprisingly, employers have had to resort to disciplinary action.

How can an employer mitigate the risks of social media misuse?

Misuse can lead to reputational damage, breaches of confidentiality, libel and harassment. Employers can be liable due to the doctrine of vicarious liability if this is done in the course of employment, even if it is unauthorised, or even forbidden, by the employer.

Smith v. Trafford Housing Trust [2012] EWCH 3221 (Ch) considered whether an employee’s religiously motivated Facebook post to the effect that gay marriages in church were “an equality too far” which he made outside of the workplace constituted a breach of its employer’s equal opportunities policy. The High Court found that the post did not breach the policy despite the Facebook page associating the individual with the employer and the views he expressed causing offence to some colleagues.

Smith demonstrates the Court’s reluctance to extend the remit of employers’ work policies to employees’ private activities and moderately expressed personal views. In order to try to overcome this, policies where appropriate should explicitly cover conduct outside of the workplace. Enforceability against employees requires clear communication of the policy. Even then, provisions may be unenforceable if they extend so far that they interfere with employees’ human rights, such as right to privacy or freedom of expression.

Social Media Policies

Some organisations may impose a blanket ban on all use of social media in the workplace. This is often backed up by a prohibition on employees from making any reference to anything related to their employment, colleagues or customers outside of the workplace, or making any comments which may cause offence. However, due to the increasing role of social media in marketing, advertising and recruitment, this may be counter-productive and unrealistic. Furthermore, it’s likely to be unpopular and may tip over into infringement of civil liberties.

Preferable may be the implementation of a social media policy which balances an individual’s rights with the need to protect an organisation’s reputation, its staff and any relationships with relevant third parties.

Each employer will need to elaborate a policy which reflects the particularities of its industry, sector and specific circumstances.

A basic policy might usefully include the following:

• A requirement that employees are not to post comments about anything related to the organisation, its employees or its customers without prior consent from a designated person made responsible for social media management.
• A provision specifying that employees are liable for all personal social media communication and that no abusive, threatening or defamatory comments will be posted and that the social media account makes it clear that views expressed are those of the employee personally and not those of the employer.
• Guidance on the line of demarcation between personal and business related social media postings.
• Guidance on when the employer’s approvals is required for postings.
• Rules on who owns the account and connections made through it: this can be very important when the employee moves to a new employer.

Furthermore, the policy should emphasise that disciplinary action will follow social media misuse, clearly outlining what that disciplinary action might entail. This action should be implemented fairly and consistently in order to avoid employment claims.

What about reputational damage caused through social media misuse?

Twitter now heavily influences the way in which information is accessed and reported  – within seconds, anyone can produce a fanciful ‘tweet’ which can be viewed by thousands of ‘followers’.  This may even end up in mainstream news, regardless of the validity of the statement. This has led the Guardian to claim that ‘social networks are, first and foremost, a new outlet for the old human habit of amoral gossip’.

Many people still believe themselves anonymous when tweeting or posting under a pseudonym. However, this is not the case. If the issue is sufficiently serious, the target might apply for a Norwich Pharmacal order, requiring the Internet Service Provider (ISP) or web host to reveal the information it holds on the particular user in order to identify the perpetrator. Many people also seem to think that the normal rules on defamation do not apply on twitter; Lord McAlpine has amply demonstrated that this is not the case.

Alternatively, target might issue a notice to take down the content to the web host under the Electronic Commerce (EC Directive) Regulations 2002. Under these regulations, the ISP will be afforded protection against proceedings only so long as it acts ‘expeditiously to remove or disable access to the information’.

In light of recent events, the Metropolitan Police is meeting interested parties in order to assess whether criminal prosecutions can be brought under the Malicious Communications Act.  The invocation of the criminal law as a means of attempting to control the threat of dangerous and harmful internet communication must be weighed against basic civil liberties.

What about ownership of data collected through social media in the course of employment?

LinkedIn’s mission is ‘to connect the world’s professionals’ and is thus predominantly a business networking site. Its terms of use state that a user is ‘individually bound’ by a ‘legally binding agreement’, and that it owns the information it provides to LinkedIn. Consequently, an employer is not party to that agreement, and it seems that the employee is in control.

However, whilst a LinkedIn account is usually personal in the sense that it is in the name of the employee, it’s very likely that an employee will have populated its account with contacts made through the course of its employment and may even have used the facility that automatically scans its work address book in order to invite colleagues and clients to become contacts. Despite this, often employment contracts do not address the key issues.

In the case of Hays Specialist Recruitment Holdings Ltd & anor v. Ions & anor [2008] AII ER 216, the High Court considered that Hays had reasonable grounds to believe it might have a claim arising from the se of a LinkedIn account to “harvest” contact details of contacts acquired in the course of his employment Mr Ions was ordered to disclose give pre-action disclosure of all his LinkedIn business contacts, all emails sent to or received by his LinkedIn account from Hays’ computer network as well as other documents that showed any use by him of LinkedIn contacts and business obtained from them. Whilst this suggests that the LinkedIn connections belong to the employer upon termination of employment the decision needs to be treated with caution as it was only a preliminary one and the case did not go on to trial.

Employment contracts should include provisions regarding ownership of business contacts stored on social media sites both during and post-termination of employment and ownership of the social media accounts themselves.

Simon Halberstam

The IP Office reports industry norms for patents at 25-33% of anticipated gross profits (pre tax) and 10-15% for trademarks. This provides a useful starting point for negotiation but the vagaries of IPR ensure it remains only a starting point. As IPR tend to be unique there can be no direct market comparison and trying to base valuation on time and money spent creating the right is a pointless exercise. There are various criteria that can be used to value IPR, yet no valuation method will work in all circumstances, Set out below is an overview of relevant considerations.

Audit

Before trying to evaluate your IPR assets you need to assess what you own. The audit will focus on:

• identifying your IPR;
• the nature and strength of your IPR;
• whether there is an existing market for the associated product or whether one need to be established;
• the level of confidentiality maintained; and
• any 3^rd parties with existing rights in relation to your IPR.

Protecting your IPR Assets

You may need a 3^rd party to review your business to establish what your IPR portfolio comprises. Often people fail to take the necessary steps to protect IPR. Considerations here include:

• Should the IPR be registered?
• For how long are the IPR valid? What is the duration of the IPR and what is the revenue generation potential?
• Do you have the finances to withstand litigation if your IPR are challenged?
• Do your IPR safeguard your position by creating barriers to market entry?
• Are there still extensive costs involved in bringing the associated products to market?
• What is the economic climate and how will it affect sales of your product?

Monetising IPR

This can be achieved by licensing or outright sale. In determining the best approach in this context it is important to look at:

• Cash flow and long term benefits of each option
• Probable lifespan of your IPR (e.g. patents have a renewable lifespan of 20 years)
• The extent of your potential market and your current market share?
• If there is a royalties element to the sale you need to evaluate not only the percentage paid but also the distribution network, and the potential for complementary products of the buyer or licensee.

Valuation techniques

We outline below 3 recognised valuation techniques, cost evaluation, market valuation and economic benefit evaluation. These are most appropriate for product based IPR.

Cost Evaluation

This takes into account the following factors:

• Cost of development: labour, materials, equipment, research and development.
• Likely cost of creating a similar product
• Acquiring approval and certification
• Registering IPR

Whilst this valuation method typically appeals to sellers as a reflection of the time and effort put into the product, it may not be so popular with buyers. This is because the factors taken into account have no direct correlation with the revenue and profitability that the buyer will generate.

Market Valuation

This is based on the IPR and licence sales of similar products. However this is often problematic.

• How do you compare a unique product? The lack of comparable offerings on the Market may make valuation by comparison extremely difficult;
• Most contracts relating to IPR are kept confidential.

Economic Benefit Valuation (EBV)

This is assessed by looking at the value added, i.e. what income may be generated in the future against the cost of generating that income over the lifetime of the IPR. This is then discounted to allow for risk and cost of development. This method has its own problems:

• How do you determine the period during which IPR are likely to generate revenue. Whilst the duration of the right may be fixed, there is no crystal ball for future market developments notably the economic environment and new competition.
• How do you accurately assess the amount of income generated solely by the IPR when other factors such as knowledge of the market and ability of staff also play a vital role?
• How do you estimate the income and demand for a product at an early stage of development?

Conclusion

Knowing the value of your IPR is crucial both when protecting it or selling it. Any prospective purchaser or licensor will have their own idea of its value so it is vital for an IPR owner to have an idea of its true worth.

For more information, please contact Simon Halberstam.

Crowdfunding is the practice of raising capital through numerous small investors. This is predominantly done online and the investment platform will rarely have a lower limit with many accepting as little as £10. In return the investor will receive either share equity and/or an “exclusive gift” which could be a ticket to a concert or a backstage pass where the investment vehicle is a band. The hosting platform generally takes around 5% commission.

There are 2 types of crowd fund:

• All or nothing – A target is set for the required level of investment within a time limit and the funds are only released to the business or individual once the target has been reached. If the target is not reached then the investments are returned.
• Keep it all – A target is set as above, but whether funds are returned or not is at the discretion of the individual or business.

FSA Position

At present the majority of websites offering crowd-funding service are not FSA authorised and as such provide little or no protection for the investor with no recourse to the Financial Ombudsman or the Compensation scheme. Recent guidance published by the FSA stated that crowd-funding should only be targeted at “sophisticated investors who know how to value a startup business, understand the risks involved and that investors could lose all of their money.” Consumer protection legislation states that only PLCs can promote or offer their shares for sale to the general public, all of which is heavily regulated by the FSA. In addition to this there are restrictions placed on carrying out a “regulated activity” such as arranging or advising on investments or offering the public securities without producing an approved prospectus. The UK regulation of collective investment schemes restricts the ability of crowd-funding platforms to use models based on a fund (as opposed to a corporate) structure.

The dangers of crowdfunding

The dangers to a naive investor or an unlucky hosting site remain high. Crowdfunding firms may be mixing client and investor money without FSA authorisation removing any protection for the investor as seen in the collapse of MF Global where the investors were left with a shortfall of $1.6billion. The FSA has yet to prosecute any site offering crowd-funding yet that does not mean it will not chose to do so in the future.

Seedrs

As of July 2012, Seedrs is the only crowdhosting platform authorised and regulated by the FSA, affording protection for investments of up to £85,000 should a regulated institution collapse.

Loopholes

Many other crowdfunding platforms are operating through legal loopholes, one such example is Crowdcube. When an investor signs up to Crowdcube’s website it becomes a “shareholder” without the standard rights. Crowdcube also takes shares in the companies looking to raise capital. Therefore when the investment “opportunities” are advertised they are targeted at the same group of existing shareholders. This is a legal promotion under FSA regulations.

Another loophole allows potential investors to buy a share in the hosting site and in doing so not only acknowledge the investment is not FSA regulated but also take responsibility for due diligence.

The practice of crowd-funding has grown over the past few years both in number of platforms and investment vehicles yet it has never been challenged by the FSA. However, any money laundering, fraud or a high profile collapsed venture could change the current relaxed attitude to these practices.

One of the key foundations of the FSA is the protection of the investor, yet the existence and use of unregulated crowdfunding sites seems to undermine this.

The Future

The current economic pressures and reluctance of banks to invest in potentially risky ventures have made crowd-funding a popular option amongst many who see it as a good way to stimulate growth and kick-start the economy. It remains to be seen whether legislation in the UK will legitimise crowd-funding, forcing Companies to take the Seedrs line or follow the US JOBs Act and deregulate passing responsibility to individual investors.

For more information, please contact Simon Halberstam.

Following recent advertising tweets direct from the official accounts of Wayne Rooney and Jack Wilshere the ASA decided that the precursor hash-tag #makeitcountgonike did not make it sufficiently obvious that it was a marketing communication.

Reality TV personality Gemma Collins also fell foul of the ASA when she tweeted about a haircut she was happy with and mentioned a discount. The ASA stated endorsing a product/service or advising of a discount will be deemed “marketing communication” regardless of the fact that there was no formal contract between the two parties.

An earlier decision by ASA had cleared a series of five tweets, only one of which was identified as marketing through hash-tag #spon (sponsorship) and @snickersuk. The first four tweets were deemed teasers and did not, in themselves, need to be identified as marketing. They merely encouraged greater interest in certain celebrities, not naming or picturing the product. Only on the fifth was the hash-tag #spon used and the product named. Yet taken as a whole it was “sufficiently clear” that the chain of tweets was part of a marketing campaign.

There is a fine line regarding the acceptability to the ASA of promotional tweets. However, as the ASAs main sanction is ‘naming and shaming’, it is unlikely unsolicited marketing and advertising tweets will stop until the breaches are deemed serious enough to warrant legislation or fall foul of existing laws.

It is worth noting that tweets like any other form of published content can of course be defamatory and get the tweeter into hot legal water.

For more information, please contact Simon Halberstam.

Implications

This decision also has retrospective implications, apparently validating the ‘resale’ of any software which was ‘sold’ on a permanent basis. Yet the software can only be used by the ‘purchaser’ for the purpose for which it was originally bought as stipulated in the licence. However, the law of exhaustion does not apply to support contracts which are separable from the contract of sale. Therefore the transferee will generally not be entitled to support under the original contractual arrangements.

Options for software suppliers

Companies wishing to maintain an element of control over distribution of their software should look to provide time limited licences paid for periodically. Cloud based services might be a good option for software providers worried about the exhaustion of their rights as software is provided on a subscription, rather than sale basis. Another option is selling licences to groups of users as it was made clear in the ECJ ruling that these licences cannot be split for the purposes of sale.

For more information, please contact Simon Halberstam.